SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         For the quarterly period ended
                                 March 31, 1998

                                       OR

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                         Commission File Number: 0-19580

                            INDUSTRIAL HOLDINGS, INC.
             (exact name of registrant as specified in its charter)

                  TEXAS                                     76-0289495     
      (STATE OR OTHER JURISDICTION                         (IRS EMPLOYER   
    OF INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)
                                                       
                              
                 7135 ARDMORE, HOUSTON, TEXAS 77054 (ADDRESS OF
                PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)

                                 (713) 747-1025
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]

    At May 11, 1998, there were 9,325,276 shares of Common Stock outstanding.
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.

                                      INDEX
<TABLE>
<CAPTION>
                                                                                        PAGE NO.
                                                                                        --------
<S>                                                                                     <C>
PART  I       FINANCIAL INFORMATION

              Item 1      Financial Statements

                          Consolidated Balance Sheets at March 31, 1998 and
                          December 31, 1997                                                1

                          Consolidated Statement of Income for the Three Months
                          ended March 31, 1998 and 1997                                    2

                          Consolidated Statement of Cash Flows for the Three
                          Months ended March 31, 1998 and 1997                             3

                          Notes to Consolidated Financial Statements                       4

              Item 2      Management's Discussion and Analysis of Financial
                          Condition and Results of Operations                              8

PART  II      OTHER INFORMATION

              Item 1.     Legal Proceedings                                                11

              Item 2.     Changes in Securities (no response required)

              Item 3.     Defaults upon Senior Securities
                          (no response required)

              Item 4.     Submission of Matters to a Vote of
                          Security Holders (no response required)

              Item 5.     Other Information (no response required)

              Item 6.     Exhibits and reports on Form 8-K                                 11

              Item 15.    Recent Sales of Unregistered Securities                          11
</TABLE>
<PAGE>

                                   INDUSTRIAL HOLDINGS, INC.

                            CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                         MARCH 31,  DECEMBER 31,
                                                        ----------  ------------
                                                           1998        1997
                                                           ----        ----
                         ASSETS

Current assets:

        Cash and equivalents .........................  $ 6,834,789  $   682,522
        Accounts receivable - trade, net .............   19,369,189   15,518,882
        Inventories ..................................   19,536,193   18,231,298
        Employee advances ............................       58,823       58,823
        Notes receivable, current portion ............    4,473,081    1,303,859
        Other current assets .........................      950,586      928,156
                                                        -----------  -----------
            Total current assets .....................   51,222,661   36,723,540
Property and equipment, net ..........................   27,348,577   24,838,205
Notes receivable, less current portion ...............    2,505,720    1,634,014
Other assets .........................................    2,264,328    1,398,382
Goodwill and other, net ..............................   16,059,816   12,285,252
                                                        -----------  -----------
          Total assets ...............................  $99,401,102  $76,879,393
                                                        ===========  ===========
          LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:

        Notes payable ................................  $17,457,742  $14,493,459
        Accounts payable - trade .....................    8,779,295    8,361,443
        Accrued expenses and other ...................    5,283,268    3,806,621
        Current portion of long-term debt ............    3,046,395    2,929,867
                                                        -----------  -----------
             Total current liabilities ...............   34,566,700   29,591,390
Long-term debt, less current portion .................   11,803,404   11,655,769
Deferred compensation payable, less current portion ..      235,551      241,778
Deferred income taxes payable ........................    3,025,981    3,024,413
                                                        -----------  -----------
              Total liabilities ......................   49,631,636   44,513,350
                                                        -----------  -----------
Commitments and contingencies Shareholders' equity:


    Preferred stock $.01 par value, 7,500,000 shares
      authorized, no shares issued or outstanding

    Common stock $.01 par value, 50,000,000
      shares authorized, 9,159,258 and 7,460,496
      shares issued and outstanding, respectively ....       91,593       74,605
   Additional paid-in capital ........................   43,036,015   26,923,298
   Retained earnings .................................    6,641,858    5,368,140
                                                        -----------  -----------
                Total shareholders' equity ...........   49,769,466   32,366,043
                                                        ===========  ===========
                Total liabilities and shareholders' 
                    equity............................  $99,401,102  $76,879,393
                                                        ===========  ===========

                 See notes to consolidated financial statements

                                        1
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.

                  CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

                                                    THREE MONTHS ENDED MARCH 31,
                                                    ----------------------------
                                                         1998           1997
                                                         ----           ----

Sales ............................................  $ 32,317,348   $ 23,201,154
Cost of sales ....................................    24,060,378     17,186,000
                                                    ------------   ------------
Gross profit .....................................     8,256,970      6,015,154
Selling, general and administrative expenses .....     5,872,734      4,393,807
                                                    ------------   ------------
Income from operations ...........................     2,384,236      1,621,347
                                                    ------------   ------------
Other income (expense):

     Interest expense ............................      (580,164)      (545,047)
     Interest income .............................       153,496         53,488
     Other income,  net ..........................       171,565          9,135
                                                    ------------   ------------
            Total other income (expense) .........      (255,103)      (482,424)
                                                    ------------   ------------
Income before income taxes .......................     2,129,133      1,138,923

Provision for income taxes .......................       855,415        420,506
                                                    ------------   ------------

Net income .......................................  $  1,273,718   $    718,417
                                                    ============   ============

Basic earnings per share .........................  $        .15   $        .12

Diluted earnings per share .......................  $        .14   $        .10

Weighted average number of common shares
   outstanding ...................................     8,696,767      6,159,186
Weighted average number of common shares
   outstanding plus potential dilutive common
   shares ........................................     9,238,549      7,080,415



                        See notes to consolidated financial statements

                                              2
<PAGE>
                                   INDUSTRIAL HOLDINGS, INC.

                       CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED MARCH 31
                                                             1998           1997
                                                             ----           ----

Cash flows from operating activities:
<S>                                                     <C>            <C>        
     Net income ......................................  $  1,273,718   $   718,417
     Adjustments to reconcile net income to net
       cash provided by operating activities:

      Depreciation and amortization ..................       849,150       578,405
      Deferred income tax provision ..................         1,568        32,723
      Deferred compensation paid .....................        (6,227)      (25,802)
      Changes in assets and liabilities, net of
         acquisitions:

         Accounts receivable and employee advances ...    (2,587,452)     (798,968)
         Inventories .................................     1,741,981      (314,650)
         Notes receivable ............................    (3,935,229)       14,643
         Other assets ................................      (407,125)     (300,126)
         Accounts payable ............................      (569,106)      161,803
         Accrued expenses ............................     1,040,516       132,345
                                                        ------------   -----------
           Net cash provided (used)

                by operating activities ..............    (2,598,206)      198,790

Cash flows from investing activities:

  Purchase of property and equipment .................    (3,907,096)     (675,254)
  Purchase of subsidiaries, net of cash ..............    (1,292,661)   (1,734,841)
                                                        ------------   -----------
           Net cash used by investing activities .....    (5,199,757)   (2,410,095)
                                                        ------------   -----------

Cash flows from financing activities:

  Net borrowing under revolving line of credit .......     2,964,284       262,795
  Proceeds from long-term debt .......................     1,760,900       754,958
  Principal payments on notes payable,
      long-term debt and capital lease obligations ...    (2,384,659)   (1,477,896)
  Proceeds from issuance of common stock .............    11,609,705       709,071
  Repurchase of common stock by an acquired company ..          --        (358,389)
                                                        ------------   -----------
      Net cash provided (used) by financing activities    13,950,230      (109,461)
                                                        ------------   -----------
Net increase (decrease) in cash and equivalents ......     6,152,267    (2,320,766)
Cash and equivalents, beginning of period ............       682,522     3,171,889
                                                        ------------   -----------
Cash and equivalents, end of period ..................  $  6,834,789   $   851,123
                                                        ============   ===========
Non-cash financing activities:

         Debt converted to equity ....................  $       --         360,000
Cash paid for:
         Interest ....................................  $    600,808   $   460,887
         Income taxes ................................  $    545,000   $   165,000
</TABLE>

                 See notes to consolidated financial statements

                                        3
<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                 MARCH 31, 1998

NOTE A      BASIS OF PRESENTATION

            The accompanying unaudited consolidated financial statements have
            been prepared in accordance with generally accepted accounting
            principles for interim financial information and with the
            instructions to Form 10-Q and Article 10 of Regulation S-X.
            Accordingly, they do not include all of the information and
            footnotes required by generally accepted accounting principles for
            complete financial statements. In the opinion of management, all
            adjustments (consisting of normal recurring accruals) considered
            necessary for fair presentation have been included. These financial
            statements include the accounts of Industrial Holdings, Inc. and its
            subsidiaries (the "Company"). All significant intercompany balances
            have been eliminated in consolidation. Operating results for the
            three months ended March 31, 1998 are not necessarily indicative of
            the results that may be expected for the year ended December 31,
            1998. For further information, refer to the consolidated financial
            statements and footnotes thereto included in the Company's annual
            report on Form 10-K for the year ended December 31, 1997.

NOTE B      INVENTORY

            Inventory consists of the following:

                                               March 31            December 31
                                                 1998                  1997

            Raw materials                   $  3,823,360          $ 3,142,217
            Finished goods                    11,504,041           11,264,361
            Other                              4,208,792            3,824,720
                                            ------------         ------------
                                            $ 19,536,193          $18,231,298
                                            ============          ===========

NOTE C         INVESTMENT IN LIMITED PARTNERSHIP

               In connection with the acquisition of Philform, the Company
               contributed certain equipment as well as Philform's operating
               activities to a limited partnership in exchange for a 49%
               interest in that limited partnership. The Company's investment in
               the limited partnership of $723,295 is included in the balance
               sheet in other assets. The Company's equity in the earnings of
               the limited partnership was $273,295 for the three months ended
               March 31, 1998 and is included in other income.

                                              4
<PAGE>
NOTE D         RECLASSIFICATION

               Certain amounts have been reclassified from previous periods to
               conform to the current presentation.

NOTE E         ACCOUNTING FOR STOCK-BASED COMPENSATION

               Effective January 1, 1996, the Company adopted Statement of
               Financial Accounting Standards No. 123 "Accounting of Stock-based
               Compensation" ("SFAS No. 123"), and elected to continue to follow
               Accounting Principles Board Opinion No. 25 to measure employee
               stock compensation cost. Had compensation expense been determined
               using the fair value method of accounting as set forth in SFAS
               No. 123, net income and basic and diluted earnings per share
               would have been $1,164,754 and $.13 and $.13 and $657,056 and
               $.11 and $.09 for the three months ended March 31, 1998 and 1997,
               respectively.

NOTE F         NEW ACCOUNTING PRONOUNCEMENTS

               On January 1, 1998, the Company adopted Statement of Financial
               Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
               Income. Comprehensive income is a more inclusive financial
               reporting methodology that includes disclosure of certain
               financial information that historically has not been recognized
               in the presentation of net income. SFAS No. 130 requires the
               reporting of comprehensive income in addition to net income from
               operations. For the three months ended March 31, 1998 and 1997,
               the Company had no items of comprehensive income, and as a result
               the Company's reported net income was the same as comprehensive
               income.

               In February 1998, the Financial Accounting Standards Board
               ("FASB") issued SFAS No. 132, Employer's Disclosures about
               Pensions and Other Postretirement Benefits, which revises certain
               disclosure requirements of the employer, and is effective for
               fiscal years beginning after December 15, 1998. Management is
               evaluating what, if any, additional disclosures may be required
               upon the implementation of SFAS No. 132.

               In March 1998, the Accounting Standards Executive Committee
               ("AcSEC") of the American Institute of Certified Public
               Accountants ("AICPA") reached a consensus on Statement of
               Position ("SOP") No. 98-1, Accounting for the Cost of Computer
               Software Developed or Obtained for Internal Use, which provides
               guidance on accounting for the costs of computer software. SOP
               No. 98-1 is effective for the fiscal years beginning after
               December 15, 1998. Management is evaluating what, if any, impact
               this SOP will have on the Company upon implementation.

                                              5
<PAGE>
               In April 1998, the AcSEC of the AICPA reached a consensus on SOP
               NO. 98-5, Reporting on the Costs of Start-Up Activities, which
               provides that the costs of such activities be expensed as
               incurred. SOP NO. 98-5 is effective for fiscal years beginning
               after December 15, 1998. Management is evaluating what, if any,
               impact this SOP will have on the Company upon implementation.

               In March 1998, the Emerging Issues Task Force ("EITF") of the
               FASB reached a consensus on Issue No. 97-11, Accounting for the
               Internal Costs Relating to Real Estate Property Acquisitions,
               which requires that internal costs of identifying and acquiring
               operating properties be expensed as incurred. Management is
               currently evaluating the impact this EITF, which was effective
               for transactions on or after March 20, 1998, will have on the
               Company.

NOTE G         ACQUISITIONS

               Effective February 1, 1998, the Company acquired Philform, Inc.
               ("Philform") along with certain leased operating assets (the
               "Equipment") for 419,773 shares of the Company's common stock
               valued at $4,520,000. Simultaneously, Philform contributed the
               Equipment and its activities to OF Acquisition L.P., a limited
               partnership (the "Partnership"), in exchange for a 49% limited
               partnership interest. Philform manufactures and sells forming and
               fastening systems primarily to the automotive industry. After the
               acquisition, the business and operations previously conducted by
               Philform are conducted by the Partnership. This acquisition has
               been accounted for by the purchase method of accounting and,
               accordingly, assets and liabilities have been recorded at their
               estimated fair values at the date of acquisition. The final
               purchase price allocation of Philform is subject to certain
               adjustments relating to the appraised value of assets and certain
               other accruals. The results of operations of Philform have been
               included in the consolidated financial statements from the date
               of acquisition.

               In March 1998, the Company acquired all of the outstanding
               capital stock of WHIR Acquisition, Inc., doing business as
               Ameritech Fastener Manufacturing, Inc. ("Ameritech") for 124,000
               shares of the Company's common stock, upon merger of a wholly
               owned subsidiary of the Company with and into Ameritech, with
               Ameritech being the surviving corporation (the "Ameritech
               Merger"). As a result, Ameritech became a wholly owned subsidiary
               of the Company. Ameritech, located in Houston, Texas,
               manufactures fasteners for sale to the aerospace, automotive,
               petroleum and petrochemical industries.

               In March 1998, the Company acquired all of the outstanding common
               stock of GHX, Incorporated ("GHX") for 693,878 shares of the
               Company's common stock, upon merger of a wholly owned subsidiary
               of the Company with and into GHX, with GHX being the surviving
               corporation (the "GHX Merger"). As a result, GHX became a 

                                              6
<PAGE>
               wholly owned subsidiary of the Company. GHX, located in Houston,
               Texas, fabricates and distributes industrial gaskets and molded
               rubber products and distributes industrial packing, hose,
               fittings and high temperature textiles to customers in the
               petrochemical industries.

               The mergers with Ameritech and GHX (together, the "Merger
               Companies") were accounted for as poolings-of-interests and
               accordingly, the consolidated financial statements for periods
               prior to the combination were restated to include the results of
               operations of the Merger Companies. Sales and net income for the
               three months ended March 31, 1997 previously reported by the
               separate companies and the combined amounts presented in the
               accompanying consolidated financial statements are as follows:
                
                                         Industrial        Merger       Combined
                                       HOLDINGS, INC.    COMPANIES     COMPANIES
                                       --------------    ---------     ---------
                                                     (000's omitted)
                
                Sales                   $  17,304         $  5,897      $23,201
                                        =========         ========      =======
                Net income              $     518         $    200      $   718
                                        =========         ========      =======
                Earnings per share:
                
                        Basic           $     .10                       $   .12
                        Diluted         $     .09                       $   .10
                

NOTE H         SUBSEQUENT EVENT

               In April 1998, the Company acquired all of the outstanding
               capital stock of Moores Pump and Supply, Inc. ("Moores"), upon
               merger of a wholly owned subsidiary of the Company with and into
               Moores, with Moores being the surviving corporation (the "Moores
               Merger"). As a result, Moores became a wholly owned subsidiary of
               the Company. Moores, located in Lafayette, Louisiana, is a
               supplier and servicer of pumps and packers to the energy
               industry, as well as provides fabrication, repair and machine
               shop services to its customers. The merger with Moores was
               accounted for as a pooling of interests. On a pro forma basis
               sales, net income and earnings per share for the combined
               companies for the quarters ended March 31 would be as follows:

                                                      1998            1997  
                                                      ----            ----
                Sales                                $37,707        $27,222
                                                     =======       ========
                Net income                           $ 1,224        $   861
                                                     =======       ========
                Earnings per share:
                
                        Basic                       $    .12       $    .11
                        Diluted                     $    .11       $    .10

                                        7
<PAGE>
                                     PART I
                              FINANCIAL INFORMATION

Item 2.        Management's Discussion and Analysis of Financial Condition and 
               Results of Operations.

               Industrial Holdings, Inc., operates three segments (i) the
               Fastener Manufacturing and Sales Segment comprised of Landreth
               Engineering Company ("Landreth"), American Rivet Company, Inc.
               ("American"), Connecticut Rivet ("CRivet"), Ameritech and
               Philform which manufacture industrial metal fasteners for sale
               primarily to manufacturers in the furniture, home appliance and
               automotive industries, LSS-Lone Star-Houston, Inc. ("Lone Star"),
               WALKER BOLT Manufacturing Co. ("WALKER") and GHX which
               manufacture industrial metal fasteners and fabricate and
               distribute gaskets, hose, fittings and other products primarily
               to the petrochemical and chemical refining and energy industries,
               and the Energy Products and Services Division comprised of; (ii)
               the Valve and Supplies Sales Segment which includes Pipeline
               Valve Specialty, Inc. ("PVS"), Manifold Valve Services, Inc.
               ("MVS"), Rogers Equipment ("Rogers") and Industrial Municipal
               Supply ("IMSCO") which remanufacture and sell pipeline valves,
               high pressure valves and industrial valves and distribute other
               products primarily to the petrochemical, chemical and petroleum
               refining industries, the pipeline transportation and storage
               industries and energy industries; and (iii) the Machine Sales and
               Service Segment comprised of The Rex Group ("REX") which sells
               new and used machine tools, provides machine moving services and
               international export crating services.

               RESULTS OF OPERATIONS

               THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS 
               ENDED MARCH 31, 1997.

               SALES. On a consolidated basis, sales increased $9,116,194 or 39%
               for the three months ended March 31, 1998 compared to the three
               months ended March 31, 1997.

               Fastener Segment sales increased 33% for the three months ended
               March 31, 1998 compared to the three months ended March 31, 1997.
               Of this increase, 60% was attributable to growth through the
               acquisitions of Lone Star in February 1997 and Walker in November
               1997 and the inclusion of a full quarter of operating results of
               these acquisitions in the three months ended March 31, 1998. The
               remainder of the increase is attributable to internal growth
               primarily as the result of improved economic conditions in the
               energy sector.

                                        8
<PAGE>
               Valve Segment sales increased 109% for the three months ended
               March 31, 1998 compared to the three months ended March 31, 1997.
               Of this increase, 74% is attributable to growth through the
               acquisition of MVS in March 1997 and Rogers in August 1997 and
               the inclusion of a full quarter of operating results of these
               acquisitions in the three months ended March 31, 1998. The
               remainder of the increase is attributable to internal growth
               primarily as the result of improved economic conditions in the
               energy sector.

               Machine Segment sales increased 18% for the three months ended
               March 31, 1998 compared to the three months ended March 31, 1997
               as REX was able to secure inventory from its primary vendor for
               sale and delivery to its customers.

               COST OF SALES. Cost of sales increased $6,874,378 or 40% for the
               three months ended March 31, 1998 compared to the three months
               ended March 31, 1997.

               Fastener Segment cost of sales increased 35% primarily as a
               result of the increase in sales described above.

               Valve Segment cost of sales increased 125% as a result of the
               increase in sales described above coupled with a reduction in
               high margin service revenues in the three months ended March 31,
               1998 compared to the three months ended March 31, 1997.

               Machine Segment cost of sales increased 13% as a result of the
               increase in sales described above. Gross margins improved as the
               sales increases covered more fixed costs.

               SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general
               and administrative expenses increased $1,478,927 or 34% for the
               three months ended March 31, 1998 compared to the three months
               ended March 31, 1997.

               Fastener Segment selling, general and administrative expense
               increased 31% primarily as a result of the increases in sales
               described above.

               Valve Segment selling, general and administrative expenses
               increased 74% primarily as a result of the increases in sales
               described above.

               Machine Segment selling, general and administrative expenses
               increased 17% primarily as a result of the increases in sales
               described above.

               INTEREST EXPENSE.  Interest expense increased $35,117 or 6% for 
               the three months ended March 31, 1998 compared to the three 
               months ended March 31, 1997, primarily as a result of a $3.2 
               million net increase in interest bearing debt. Debt was 

                                        9
<PAGE>
               incurred to finance acquisitions but these increases in debt were
               offset by reductions in debt as $2.96 million of 12% notes were 
               converted to equity in 1997.

               OTHER INCOME.  Other income for the three months ended March 31, 
               1998, includes $273,295 of equity in income of the Partnership.

               INCOME TAXES. The Company's effective tax rate was 40% for the
               three months ended March 31, 1998 compared to 37% for the three
               months ended March 31, 1997. The higher effective tax rate is
               attributable to the inclusion of non-deductible amortization of
               goodwill as a result of acquisitions.

               LIQUIDITY AND CAPITAL RESOURCES. At March 31, 1998, the Company
               had cash of $6,834,789 and additional borrowing capacity under
               its line of credit of $4,957,075. The Company's operations used
               cash of $2,598,206 during the three months ended March 31, 1998
               compared to providing cash of $198,790 during the three months
               ended March 31, 1997. This change was primarily attributable to
               increases in accounts and notes receivable.

               Investing activities used cash of $5,199,757 for the three months
               ended March 31, 1998 compared to $2,410,095 for the three months
               ended March 31, 1997. This increased use of cash was primarily
               attributable to the acquisition of Philform and purchases of
               property and equipment.

               Financing activities provided cash of $13,950,230 for the three
               months ended March 31, 1998 compared to using cash of $109,461
               for the three months ended March 31, 1997. This change is due to
               an increase in proceeds received from the issuance of common
               stock as well as increased borrowings under the line of credit.
               In January 1998, the Company completed an offer (the "Offer") to
               the holders of its Class B Warrants to exchange each Class B
               Warrant and $10 cash for one share of Common Stock, one Class W
               Warrant and one Class D Warrant. The holders of Class B Warrants
               tendered their warrants. The Company received net proceeds of
               $10,845,000 after deducting $190,000 of expenses incurred in
               connection with the Offer.

               At March 31, 1998, the Company had working capital of
               $16,655,961, long-term debt of $11,803,404 and shareholders'
               equity of $49,769,466. The Company anticipates that its operating
               cash needs for fiscal 1998 can be met with cash generated from
               operations, borrowings under its credit facilities with Comerica
               Bank-Texas, and private placements of securities. However, any
               acquisition of companies in connection with the Company's
               acquisition strategy will require additional financing, which
               likely would include a combination of debt and equity financing.

                                       10
<PAGE>
                                     PART II
                                OTHER INFORMATION

Item 1.  Legal Proceedings.

         The Company is involved in litigation arising in the ordinary course of
         its business. In the opinion of management, the ultimate liability, if
         any, as a result of these matters will not have a material adverse
         effect on the Company's consolidated financial condition or results of
         operations.

Item 6.  Exhibits and Reports on Form 8-K

         (a)     Exhibit 11 - Earnings per Share
         (b)     Reports on Form 8-K

         On January 19, 1998, the Company filed a Report on Form 8-K announcing
         the completion on January 19, 1998 of its offer to the Class B
         Warrantholders. On February 11, 1998, the Company amended its Report on
         Form 8-K to report the extension of the expiration date on the Class C
         Warrants to January 14, 2000.

         On February 19, 1998, the Company filed a Report on Form 8-K announcing
         the acquisition of Philform, Inc. ("Philform") along with certain
         leased operating assets. On February 20, 1998, the Company amended its
         Report on Form 8-K extending the time required to file the financial
         statements and related required pro forma financial information for
         Philform. On March 31, 1998, the Company filed the required financial
         statements and pro forma financial information for Philform.

         On April 15, 1998, the Company filed a Report on Form 8-K announcing
         its merger with Ameritech Fastener Manufacturing, Inc.

         On April 15, 1998, the Company filed a Report on Form 8-K announcing
         its merger with GHX, Incorporated.

         On April 16, 1998, the Company filed a Report on Form 8-K announcing
         its merger with Moores Pump and Supply, Inc.

Item 15. Recent Sales of Unregistered Securities

         In February 1998, the Company issued 375,692 shares of Common Stock
         valued at $4,070,000 to the shareholders of Philform, Inc. ("Philform")
         in exchange for all the outstanding capital stock of Philform.

                                       11
<PAGE>
         In February 1998, the Company issued 44,081 shares of Common Stock
         valued at $450,000 to SMS Industries, Inc. in exchange for an interest
         in equipment.

         In March 1998, in connection with the merger of a wholly owned
         subsidiary of the Company with Ameritech Fastener Manufacturing, Inc.
         ("Ameritech"), the Company exchanged 124,000 shares of Common Stock for
         the outstanding common stock of Ameritech held by the shareholders of 
         Ameritech.

         In March 1998, in connection with the merger of a wholly owned
         subsidiary of the Company with GHX, Incorporated ("GHX"), the Company
         exchanged 693,878 shares of Common Stock for the outstanding common
         stock of GHX held by the shareholders of GHX.

         In April 1998, in connection with the merger of a wholly owned
         subsidiary of the Company with Moores Pump and Supply, Inc. ("Moores"),
         the Company exchanged 1,600,000 shares of Common Stock for the
         outstanding common stock of Moores held by the shareholders of Moores.

                                    SIGNATURE

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant, Industrial Holdings, Inc., has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                            INDUSTRIAL HOLDINGS, INC.

Date: May 14, 1998                          By:   /s/CHRISTINE A. SMITH
                                               ------------------------
                                                   Christine A. Smith,
                                                   Chief Financial Officer and 
                                                   Vice President

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<PAGE>
                            INDUSTRIAL HOLDINGS, INC.
                               EARNINGS PER SHARE
                                 MARCH 31, 1998
                  (thousands of dollars, except per share data)

                                                     THREE MONTHS
                                                    ENDED MARCH 31

                                                     1998          1997
                                                     ----          ----
Net income                                         $ 1,274       $   718
                                                     =====         =====
Basic earnings per share
   Weighted average common shares
       outstanding                                   8,697         6,159
                                                    ======        ======
   Basic earnings per share                        $   .15       $   .12
                                                   =======       =======
Diluted earnings per share

   Weighted average common
      shares outstanding                             8,697         6,159
   Shares issuable from assumed
     conversion of common stock
     options and warrants granted                      542           921
                                                    ------        ------
Weighted average common shares
   outstanding, as adjusted                          9,239         7,080
                                                    ======        ======
Diluted earnings per share                         $   .14       $   .10
                                                   =======       =======

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